The Value Spread as a Predictor of Returns

42 Pages Posted: 13 Jun 2005 Last revised: 23 Jun 2005

See all articles by Naiping Liu

Naiping Liu

University of Pennsylvania - Statistics Department

Lu Zhang, 张橹

Ohio State University - Fisher College of Business; National Bureau of Economic Research (NBER)

Date Written: May 2005

Abstract

Recent studies have used the value spread to predict aggregate stock returns to construct cash-flow betas that appear to explain the size and value anomalies. We show that two related variables, the book-to-market spread (the book-to-market of value stocks minus that of growth stocks) and the market-to-book spread (the market-to-book of growth stocks minus that of value stocks) predict returns in different directions and exhibit opposite cyclical variations. Most important, the value spread mixes information on the book-to-market and market-to-book spreads, and appears much less useful in predicting returns.

Suggested Citation

Liu, Naiping and Zhang, Lu, The Value Spread as a Predictor of Returns (May 2005). NBER Working Paper No. w11326. Available at SSRN: https://ssrn.com/abstract=720412

Naiping Liu

University of Pennsylvania - Statistics Department ( email )

Wharton School
Philadelphia, PA 19104
United States

Lu Zhang (Contact Author)

Ohio State University - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
585-267-6250 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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